nun

Well like everything in the law words matter. WEP is there to protect the progressive nature of SS and was implemented to deal with the cases where people have limited SS records and have also worked for employers like US states that have opted out of SS and pay their own pensions. The limited SS record leads to the person's SS being calculated as if they had a lower average salary that they actually had. So the WEP adjustment is made for any pension due to non-SS earnings. There is no distinction in WEP between US and non-US employment so if you have foreign earnings related pensions they also fall under WEP. You might not think it fair and the rules were certainly not created with foreign pensions in mind, but they get scooped up in the wording. The exceptions to WEP are for things like foreign SS schemes that are not earnings related as pointed out by the judge in the Spanish case.

Pulaski

OK, so an employer pension I can see being accidentally swept up and included, but I suspect someone will challenge the inclusion of a British "private pension" because it is a clone of a US 401k and is in no way a "pension" as is understood in either the US or the UK.

nun

Well a 401k is certainly a pension as defined in the US/UK tax treaty. A pension does not have to be a defined benefit, it can also be drawn form a defined contribution scheme like a 401k. You might be able to argue the point wrt a SIPP, but if you have one would you really want it to not be a pension given the potential US tax complications if you are a US resident or citizen. If you can make contradictory arguments to the SSA and the IRS and win them both I will applaud you.

dunroving

But might be worth a punt for those who are not US resident or US citizens?

Or are there negative implications for making the argument that Pulaski is making for overseas residents also?

Lin_NJ

I have been digging further following the Spanish case, Rabanal v. Colvin. I discovered another case, this one from the District of Columbia - Greenberg v. Colvin, 2013, which reveals a Class Action by Israeli pensioners. This group, presumably dual nationals, avoided the WEP although they had Israeli government pensions. Again it was the residency/ citizenship issue and 'flat rate not based on earnings' that appears to have been the key. When I have a moment I will examine the underlying documents.
Here is a link to the court's opinion.

Google Scholar

Regarding the application of WEP and foreign private pensions (like 401k) it does seem very harsh and my gut is that this should be challenged. Perhaps it runs counter to the underlying policy of WEP. I have a 401k but it could not be used to lower my entitlement to Social Security.

nun

I don't know why you think it harsh. WEP is to protect the progressive nature of SS. A 401k isn't applicable to WEP because you pay FICA tax on it. Any foreign pension paid for from earnings that didn't have SS tax means that some of your income is missed when calculating SS and it will be calculated at a rate higher.

In my case I will get a US state pension that is large enough so that I get the max WEP on my 17 years of SS without even having to consider any foreign pensions. I accept the WEP because I believe that those with lower average earnings should have SS calculated at a more generous rate; I support the progressive nature of earnings related SS.

Lin_NJ

I stand corrected on the FICA issue and that this distinguishes a private foreign pension. But suppose you have paid FICA type tax in the foreign jurisdiction on the private pension, but are not entitled to a governmental pension from that jurisdiction. Would the result of applying WEP cause a double taxation? The problem with WEP is that expats were not part of the story, it seems. WEP policy was directed at preventing double dipping where federal employees contributed not to SS but to a " federal pension that was designed to take the place of both social security and private pensions." And, there are exceptions to WEP for armed services personnel that receive a pension.

nun

True enough. There may well be some circumstances where the expat gee a bad deal, but US domestic law sometimes does that. Life isn't always fair

Loaded4th

As in my case, and even more so because I was denied disability having delayed applying in an endeavour to be honest and not take advantage of the system. This limited my working/paying-in years so I got stung with the maximum WEP.

Lin_NJ

Fairness for citizens of the United States (and those others subject to its laws) so that they are treated equally before the law is governed generally by federal constitutional principles. Life may well be unfair, but there could be a challenge that asserts that double taxation of the same property caused by the WEP -as-applied to globalized citizens' private pensions upon which taxes overseas have been paid is inherently unfair and unconscionable. Of course there is a rational and legitimate goal of the WEP when applied to federal employees/state employees, which is the purpose for which it was enacted, but when it strays far afield and creates unfairness to those it was never intended for, it should pull back. Anyway, it is a story that is worth watching.

nun

Fair is subjective and the Constitution, like so many founding documents, defies a single fundamentalist interpretation......however much people would like it that way. Talk to your House Rep and Senators about your WEP concerns, some legislation about it has been floating around for a while.

If you are WEP'ed you are not doubly taxed, you are just having SS calculated correctly for your actual lifetime income, rather than the lower average implied by your limited SS contributions.

Loaded4th

How is it correct if my pension would have been much higher if I worked for 40-odd years in the UK, or, if I worked solely in the USA.

Loaded4th

Been there, done that. All I noticed was an out-of-the-blue reassessment that did not change anything.

theOAP

If this were a true statement, fair for all, then voluntary contributions to the UK State Pension would be included in the WEP calculations. Voluntary contributions increase the amount of the UK State Pension, and hence increase the amount of your retirement income. The amount of retirement income available is the ultimate objective. That increase (via UK voluntary contributions) is not factored into the WEP calculations. The true measure of fairness is the amount of US SSA benefits received. Therefore, your actual lifetime income has nothing to do with the fairness of the amount of US SSA benefits you receive or the amount of benefits you have in retirement when UK voluntary NIC's are involved. The only way it could be fairer is if SSA allowed voluntary contributions comparable to voluntary Class 2 NIC's for those who are no longer allowed to contribute to US SSA.

It works for those always employed in the US and who contribute to SSA and Another (a State, for example). The two schemes are often balanced as regards benefits. As long as the SSA insists on WEPing SS benefits by including worldwide pensions, it is unfair (unbalanced) to those who work and contribute to the retirement schemes of 2 different countries, and are not allowed to contribute voluntarily to US SSA. Schemes between two countries are often unbalanced in terms of benefits. Would you rather have a full UK State Pension for 35 years worked with max contributions, or a full US SS benefit for 30 years worked with max contributions?

Pulaski

If they made US SS means tested then the unfairness problem would go away, but they created the WEP rules to make SS partially means tested, and created a pigs breakfast. ..... Maybe they just did that to soften people up for "full" means testing?